Jan 052008

Really. They do. But there really isn’t. This entry is, of course, a take-off from a blog entry by Ramit Sethi of I Will Teach You To be Rich.com. The original entry can be found here. This is one of the cores of abundance mentality vs a scarcity mentality. To believe there is an abundance of wealth, options, opportunities and choices, as well as ability. To know that another person’s success does not diminish yours in any way.

In the article, he touches on the main points of this mindset, namely whether it is a zero-sum issue, “Or are they just complaining about a world that has limited resourced that they seemingly have no access to?” Zero-sum is a sort of situation where one player has to lose something for another player to win something.

I want to discuss the main causes of this mindset:

  • Parents. I’m still amazed at how much like their parents people really are. Many won’t admit it, even to themselves, in most things like personality, etc. But people’s relationship to abundance (of any kind–not just money) is usually influenced by their parents, whether it is similar or dissimilar. Children of cheap parents might become cheap, or very spendthrift, unless they choose otherwise. If your parents thought that the world was limited, you likely do, too.
  • Their own experience. For most people, when they purchase something, they give their money to someone and then that person has money (and not the thing) and the first person doesn’t have the money anymore. This would naturally lead most people to conclude that the economy is a zero-sum game with a fixed amount of money and/wealth.
  • A misunderstanding of economics and money.
    • You see, depending on which country you’re in, the money printed will increase each year. In the US, there is an increase of 5% in the money supply. This is now, the amount of physical cash has increased dramatically over the last century. That’s physical cash, though, which is only a symbol of debt on social value–a ticket, in Buffett’s terms.
    • Since money is the currency of trading things, there are certain assets which appreciate or depreciate over time, adding or subtracting from the total wealth that the money is supposed to be currency for. For example, the stock market. If I recall correctly, fully a third of the wealth of the United States is in the form of stock market certificates. And, the stock market has been increasing at a rate of about 10% a year, on average for the past many decades, so the overall wealth of a nation is improving through the use of appreciating assets, who’s real value is solidified when it is sold or bought.
    • One other way that more money is introduced into the system is through the fractional reserve banking system. That essentially means that a bank can lend out more money than it actually has in reserve (ie, it has a fraction of the credit amount in reserve). Thus, a bank might have a fractional reserve requirement of 10% need only have 100 dollars in reserve to be able to lend out a 1000 dollars on it, and it can also lend out the original $100.

Fact is, inflation is influenced by these factors. Inflation is the steady increase in cost of goods and services, and/or the devaluation of money’s purchasing power. As there is more money each year chasing the same or similar amount of goods and services, the prices of these things goes up. A dollar in a year after 3% inflation is only worth about 97 cents today. That may not seem like a big difference, but compound interest can be a powerful mistress over long periods of time. Inflation is the main reason that you could buy a bottle of coke for ten cents in the last century.

So, I hope you’ll agree, that the not only is there a huge money supply and it is increasing, there is also the opportunity to create wealth and value and that opportunity is also increasing. We are living in the richest times ever, really, even when using measures of disposable income and adjusting for inflation.

Further reading:

Wikipedia “Money Supply”

Wikipedia “Fractional Reserve System”

Google search for money circulation

Note: Comments are always welcome. 🙂

  3 Responses to ““Some people think there’s only a limited amount of money””

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